Consumer Discretionary Spending Signals

One proprietary signal I've tracked since 2007 is monthly discretionary spending. It has been highly successful at projecting tops 4+ months in advance and bottoms 6+ months in advance with the extent of most moves exceeding 8% while a few were 4-5% or 20%+. I mentioned around November 1st that there was a new bottom signal for late April-early May. There was an immediate trend reversal the following month projecting a top late March to mid April. When such back-to-back projection months occurred a few times in the past, the top/bottom either inverted or there was a rapid 4-5 week drop like Sep/Oct 2014.

Based on that history, the slightly favored projection would be a rally (or perhaps sideways/EDT action) into late-March/early-April followed by an 8%+ 4-6 week drop. The alternate projection would basically be the opposite: an 8%+ drop into late-March/early-April followed be a 4-6 week rally that may or may not make new highs. Those 2 opposing projections might seem worthless, but one could interpret that to mean there is a safe bet for a strong 8%+ reversal once you see a capitulation move ending between late March and early April perhaps using one's own indicators to identify technical extremes in that timeframe.

Perhaps other information can help us favor one of the 2 projections. The weekly chart for the last 6 months is looking similar to late 2007, although there is a slightly steeper trend perhaps requiring a little more topping action above the 40-week SMA (roughly equivalent to the 200dSMA). Since the market has already rallied back to SPX 2050 today, new highs seem likely even though 2060ish has seen resistance. However, given the Fed sticking with its plan for tightening later this year and given the slowing economy with energy demand portending further slowing and the slowing technical trend, it's hard to imagine this market rallying for another 8-10 weeks into April. Also, the largest scare in 3-4 years occurred with the 200+pt drop in October and I've found the following quarter (Q1 2015 in this case) typically sees selling especially when the trend is long in the tooth. And, the last time the T-Theory Indicator dropped this hard for 6-7 months was during the 20% SPX drop in 2011. Having said that, the 20% SPX drop followed more closely alongside the T-Theory in 2011 mostly after a series of lower highs finally caved in whereas the same scenario has been in place for months in the current T-Theory setup with only a 5% SPX drop thus far. So, either the rubber band is tightening or this time is different. Putting all that together, I tend to think SPX is on the edge of a precipice with possible highs over the next month, a likely bottom in late March, failed retest in April/May and then further damage in summer. That means I favor the more pessimistic scenario which perhaps should concern you, so I fall back on saying late March to early April should see the start of a 4-6 week 8%+ reversal against the trend into that time period. Good fortune.